Fed on tiptoes as it tries to lower interest rates without waking inflation

''We probe for that point,'' says a top official of the Federal Reserve, ''where interest rates drop low enough to let recovery begin - without reigniting inflation.''

''Long-term interest rates are still too high,'' says another Fed official, ''indicating that inflationary expectations have not yet been erased.''

Thus these two men, both at the core of decisionmaking in the nation's central bank, define the dilemma confronting Fed chairman Paul A. Volcker and his six fellow governors.

Economist Herbert Stein puts the matter a different way. ''Two factors,'' he says, ''put upward pressure on interest rates - inflationary expectations and the prospect of huge budget deficits.''

Since last July, says a new survey published by the Morgan Guaranty Trust Company, long-term interest rates have dropped more than 4 percentage points. Short-term rates are down more than 5 percent.

This sounds encouraging. But because inflation has plummeted, real interest rates - the nominal rate minus inflation - still hang high.

When the prime rate stood at 20 percent and the consumer price index (CPI) ran at 12 percent, the real rate of interest as economists measure it was 8 percent. Today the prime is 11.5 percent and consumer prices are rising about 5 percent. So the real rate of interest has dropped to 6.5 percent - lower than a year ago, but still too high to let recovery begin.

Congress and the White House, meanwhile, give little sign that they are about to halt the upward march of the federal government's budget deficits, expected to top $200 billion yearly unless spending and tax policies are radically changed.

This puts the onus on the Fed. Only if interest rates come down farther is recovery likely to begin. Seven times since last July the Fed has cut its discount rate - the rate the central bank charges on loans to member banks - from 12 to 8.5 percent.

Usually the Federal Reserve ''follows'' the market; that is, it adjusts the discount rate to put it in line with other short-term rates.

This week the Fed, deeply concerned by the economy's persistent weakness, ''led'' the market. By pushing the discount rate to 8.5 - lower than other short-term rates - the central bank sent a clear signal that it wants interest rates to drop again.

Caution, however, is the watchword. ''You will note,'' says a Fed governor, ''that we have reduced the discount rate each time by only half a percentage point,'' probing each time for the market's sensitive reaction.

If lenders conclude that the Fed, by easing up on the money supply in order to stimulate the economy, is inviting a new round of inflation, lenders will put interest rates up, not down.

''We may be sowing future seeds of inflation,'' says a Fed source. ''No one can be sure. But given the weakness of the economy, we have no alternative but to ease up.''

Latest government figures buttress the Fed's conviction that recovery has not yet begun, at least in any solid way.

In November, according to the Federal Reserve Board, output of the nation's factories dropped again - the 14th time in the last 16 months. On average, US factories now operate at about 68 percent capacity.

Fed analysts cite these reasons that the risk of a new burst of inflation - or even an upward creep of prices - appears to be relatively small in the foreseeable future:

* Oil prices are likely to decline, as member nations of the Organization of Petroleum Exporting Countries compete for sales and petroleum production outside the 13-nation cartel rises.

* Unit labor costs, which in recent years have given a strong upward propulsion to inflation, currently are stable. Although wages and benefits continue to rise slowly, these additional costs are largely offset by gains in productivity.